Figuring Your Taxes

After months of debates, rewrites, additions and deletions, congressional negotiators reached agreement a week ago on the most radical changes to the income tax system in a half-century.

U.S. Treasury Secretary James A. Baker III called the legislation a remarkable achievement that will boost the economy and make "big winners" of the American public.

The bill would reduce the number of individual tax brackets from 14 or 15, depending on the filing status, to two basic rates of 15 and 28 percent. Personal exemptions would rise, as would the standard deduction. The bill would eliminate the popular IRA deduction for many taxpayers and the special "marriage penalty" deduction for two-earner couples.

Taxpayers who itemize would lose deductions for sales tax, consumer interest and most of their business expenses. Unemployment benefits would be fully taxable under the proposed legislation, and charitable deductions would be eliminated for taxpayers who do not itemize. In most cases, tax shelters would no longer benefit the high income taxpayer. Write-offs for capital gains and dividends would be affected as well.

The proposed legislation is expected to win the approval after Congress reconvenes Sept. 8. To get a better idea of how the plan would affect the taxpayer, The Morning Call examined five fictional scenarios (starting on this page and continued on A2), comparing how much in federal income tax would be paid under the 1985 tax law and proposed system when it is fully phased in.

With the help of Certified Public Accountant James Anderson of Campbell, Rappold & Yurasits in Allentown, The Morning Call looked at the taxes that would be paid by a low-income single male, a married couple with unemployment benefits, a middle-income couple with two children, a single middle-income person, and a high-income couple with a portfolio.